Pinnacle West weighed down by fuel costs

SAN FRANCISCO (MarketWatch) -- Pinnacle West Capital Corp., parent of the Arizona Public Service Co. electric utility and the state's biggest power provider, reported a sharply lower first-quarter net profit Tuesday, burdened by a steep spike in the price of the fuel needed to run its power plants.

Phoenix-based Pinnacle West
PNW, +0.50%
said that for the first three months of 2006 its net income fell by half to $12.5 million, or 13 cents a share, from $24.4 million, or 27 cents a share, a year ago.

Analysts surveyed by Thomson First Call had expected Pinnacle West to hand in earnings of 25 cents a share.

Revenue rose 14% to $670.2 million from $585.4 million in the year-ago period. However, overall expenses jumped even more aggressively, up 24% to $613 million from $493.5 million a year earlier.

Arizona Public Service, which serves more than a million homes and businesses across the state, swung to a $5.5 million loss in the quarter from a $27 million profit. Much of the reversal was pinned on the soaring price of natural gas and the cost of electricity bought from independent generators to meet energy demand in its service territory.

Chairman Bill Post said sales growth "was strong, increasing 4% in 2006. But the associated revenue growth was more than offset by high natural-gas and purchased-power prices," according to a company statement.

The company said a decision last week by state regulators would allow the utility to pass the cost of higher fuel prices down to its customers on a more "timely basis," helping to close the gap between revenue and operating expenses.

Also stemming the decline at the utility was a big jump in earnings from Pinnacle West's real-estate business, SunCor Development Co., which reported net income for the quarter of $22 million, more than double year-ago earnings of $9.4 million.

Pinnacle West shares closed Tuesday with a 1.8% loss at $39.63.

For the year, the stock is off 2.3% , compared with essentially no change in the Dow Jones Utilities Average
DJU, +0.54%
since Jan. 1.

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